Term
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Definition
| property, plant, and equipment |
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Term
| account balances included in the PPE audit |
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Definition
Buildings, equipment, improvements, and vehicles including associated depreciation expense, repairs and maintenance, and accumulated depreciation.
Land
Capital leases and associated amortization expense |
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Term
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Definition
| Are all transactions affecting PPE for the period reflected in the balance? |
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Term
| audit procedures for completeness for PPE |
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Definition
Perform analytical procedures.
Reconcile S/L and G/L.
Analyze repairs and maintenance. |
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Term
| analytical procedures for completeness for PPE |
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Definition
ROA (NI / Avg. total assets)
plant assets / total assets |
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Term
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Definition
| A schedule of fixed assets is typically prepared from the subsidiary records to be used in testing and is included in the audit documentation. |
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Term
| analyze repairs and maintenance |
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Definition
| auditor should vouch significant debits from the repairs and maintenance expense to see if any should have been capitalized (debits may have been for non-capital items). |
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Term
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Definition
| Have the amounts for the specific accounts been recorded appropriately? |
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Term
| audit procedures for accuracy for PPE |
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Definition
| Include amounts and classifications in the management representation letter. |
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Term
| valuation/allocation for PPE |
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Definition
| Are balances of PPE recorded in accordance with GAAP (historical cost - accum. depr)? |
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Term
| inspect records of purchases (assertions tested) |
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Definition
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Term
| vouch additions and disposals (assertions tested) |
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Definition
| valuation/allocation, completeness, and existence. |
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Term
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Definition
| Do the assets reflected in PPE exist as of the B/S date? |
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Term
| audit procedures for existence of PPE |
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Definition
| inspect plant additions (additions to PPE). |
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Term
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Definition
The auditor vouches a sample from the recorded asset additions by examining the supporting documents and inspecting the physical assets. Testing in the opposite direction, i.e., by tracing from the supporting documentation to the G/L, does not provide evidence that recorded assets exist.
Initial audits require inspection of significant assets reflected in the beginning balance as well as additions. |
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Term
| existence vs. completeness testing |
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Definition
existence- G/L to supporting documentation (journals to assets)
completeness- supporting documentation to G/L (assets to journals) |
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Term
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Definition
| Have transactions relating to PPE been recorded in the proper period? |
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Term
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Definition
| Additions and disposals near year end should be tested to ensure recording in the proper period. |
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Term
| rights and obligations for PPE |
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Definition
| Does the entity have ownership rights in the reported PPE? |
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Term
| audit procedures for rights and obligations for PPE |
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Definition
Examine titles and leases.
Inspect insurance policies.
Inspect property tax records. |
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Term
| examine titles and leases |
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Definition
| Certain property should have certificates of title. For leased assets, contracts should allow the auditor to determine whether leases have been properly recorded as either capital or operating leases. |
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Term
| inspect insurance policies |
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Definition
| The entity should insure its assets. Vouching the recorded assets to insurance policies supports the rights assertion. |
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Term
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Definition
| When liens are placed on equipment or property, the lienholder be named as the beneficiary. Hence, the policy is likely to be held by the lienholder even though the client is required to pay the premiums. |
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Term
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Definition
| Did the transactions relating to PPE occur? |
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Term
| audit procedures for occurrence of PPE |
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Definition
| The auditor should test the authorization, execution, recording, and custody aspects of a sample of transactions. |
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Term
| classification and understandability of PPE |
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Definition
| Is the balance of PPE reflected on the B/S in the noncurrent section? Are adequate disclosures presented for methods of depreciation, commitments of assets, and capital lease terms? |
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Term
| audit procedures for classification and understandability of PPE |
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Definition
Read F/S.
Make inquiries of management about disclosures and other reporting issues.
Significant items should be included in the management representation letter. |
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Term
| balances included in audit plan for investments |
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Definition
noncurrent items- capital stock and bonds, equity and debt instruments
current items- trading, held-to-maturity, and available-for-sale securities
Derivatives and hedges
Revenues generated from investments. |
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Term
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Definition
| unperformed contract that results in cash flow between two counterparties based on (derived from) the change in some other indicator of value. |
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Term
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Definition
| defensive strategies to protect an entity against the risk of adverse price or interest rate movements on certain assets, liabilities, or anticipated transactions. |
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Term
| On what does the appropriate classification of investments depend? |
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Definition
| management's intent in purchasing and holding the investment, on the entity's actual investment activities, and, for certain debt securities, on the entity's ability to hold the investment to maturity. |
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Term
| auditors and classifying investments |
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Definition
| The auditor should obtain an understanding of the process used by management to classify investments before determining the nature, timing, and extent of further audit procedures. |
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Term
| On what does the inherent risk of derivatives and securities depend? |
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Definition
| their complexity, management's objectives, whether transactions involve a cash exchange, extent of entity's experience with derivatives and securities, whether a derivative is embedded in a host contract, external matters, entity's reliance of outsiders, assumptions required by GAAP. |
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Term
| assessing control risk for investments |
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Definition
requires considering whether controls, including those of service organizations, have been implemented that provide for:
Independent approval and monitoring of derivatives activities,
Senior management's attention to situations in which limits are exceeded and divergences occur from approved derivatives strategies, and
Reconciliations over the full range of derivatives. |
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Term
| substantive procedures based on investment risk assessments |
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Definition
The auditor should determine whether hedging activities have been carried out in accordance with GAAP.
The auditor also should gather evidence about management's intent and ability, for example, to hold debt securities until maturity, exercise significant influence over an equity-based investee, enter into a forecasted transaction, or dispose of securities classified as trading in the near term.
Furthermore, the auditor should obtain written management representations confirming various aspects of derivatives and securities transactions. |
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Term
| completeness for investments |
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Definition
| Are all transactions affecting investments for the period reflected in the balance? |
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Term
| audit procedures for completeness for investments |
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Definition
Perform analytical procedures.
Reconcile S/L and control accounts.
Evaluate contracts and agreements. |
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Term
| analytical procedures for completeness for investments |
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Definition
| Prior-period amounts held should be compared with current amounts. The expected ROI held can be compared with actual recorded amounts. |
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Term
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Definition
| Have the amounts been recorded appropriately? |
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Term
| audit procedures for accuracy for investments |
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Definition
| Recalculate interest revenue. |
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Term
| valuation/allocation for investments |
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Definition
| Are balances valued in accordance w/GAAP? |
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Term
| auditing procedures for valuation/allocation of investments |
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Definition
Vouch recorded amounts for trading securities and available-for-sale securities to market quotations if available. If not, obtain valuations from broker-dealers and other third-party sources.
Determine that unrealized gains and losses (changes in fair value) are properly accounted for.
Vouch recorded costs for HTM securities to market quotations. Measure at amortized cost only if going to be HTM.
Determine that transfers between categories of investments are at fair value.
Inspect relevant records and documents and make appropriate inquiries about nontemporary declines in fair value. They should be written down in this case.
Obtain audited F/S from the investees if investments are accounted for by the equity method.
Evaluate goodwill for potential impairments. |
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Term
| unrealized gains and losses |
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Definition
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Term
| Unrealized gains and losses on TS are included in... |
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Definition
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Term
| Unrealized gains and losses on AFS are included in... |
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Definition
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Term
Are temporary declines in fair value written down?
Are nontemporary declines in fair value written down? |
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Definition
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Term
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Definition
| Do the recorded investment balances exist at the B/S date? |
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Term
| auditing procedures for existence of investments |
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Definition
Physically inspect and count securities in the client's possession.
Confirm securities. |
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Term
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Definition
| Have transactions been recorded in the proper period? |
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Term
| rights and obligations of investments |
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Definition
| Does the entity own the reported investments? |
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Term
| auditing procedures for rights and obligations of investments |
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Definition
| Trace dividend and interest revenue and ensure that it is properly recorded. |
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Term
| occurrence of investments |
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Definition
| Did the transactions related to investments occur? |
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Term
| auditing procedures for occurrence of investments |
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Definition
| Vouch recorded costs to documentation. |
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Term
| classification and understandability of investments |
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Definition
| Are balances related to investments reflected on the B/S in the current or noncurrent section depending on management expectations? |
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Term
| auditing procedures for classification and understandability of investments |
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Definition
Inspect the F/S. Determine that individual trading, AFS, and HTM securities are reported as current and noncurrent as appropriate. Determine whether derivatives, hedges, and other financial instruments are adequately described in the F/S notes.
Make inquiries of management about intentions to dispose of investments. |
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Term
| balances included in audit plan for noncurrent debt |
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Definition
Noncurrent notes payable, mortgages payable, and bonds payable
Related interest expense. |
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Term
| completeness of noncurrent debt |
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Definition
| Are all transactions affecting noncurrent debt for the period reflected in the balance? |
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Term
| audit procedures for completeness of noncurrent debt |
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Definition
Perform analytical procedures.
Reconcile the S/L w/ control accounts in G/L. |
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Term
| accuracy of noncurrent debt |
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Definition
| Have the balances for specific accounts been recorded appropriately? |
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Term
| audit procedures for accuracy of noncurrent debt |
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Definition
| Make inquiries of management. |
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Term
| valuation/allocation of noncurrent debt |
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Definition
| Are balances valued in accordance with GAAP? |
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Term
| audit procedures for valuation/allocation of noncurrent debt |
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Definition
Vouch recorded debt-to-debt instruments.
Test amortization. |
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Term
| existence of noncurrent debt |
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Definition
| Do the recorded noncurrent debt balances exist at the B/S date? |
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Term
| audit procedures for existence of noncurrent debt |
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Definition
Physically inspect and count securities in the client's possession.
Confirm securities. |
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Term
| cutoff of noncurrent debt |
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Definition
| Have transactions been recorded in the proper period? |
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Term
| rights and obligations of noncurrent debt |
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Definition
| Has the entity incurred the reported debt? |
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Term
| audit procedures for rights and obligations of noncurrent debt |
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Definition
Evaluate existing agreements. The auditor should obtain evidence that the debt is the obligation of the auditee.
Examine any bond trust indenture. |
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Term
| occurrence of noncurrent debt |
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Definition
| Did the transactions relating to noncurrent debt occur? |
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Term
| audit procedures for occurrence of noncurrent debt |
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Definition
| Review contracts and agreements. |
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Term
| classification and understandability of noncurrent debt |
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Definition
| Are balances properly reflected in the B/S, is interest expense properly reported on the I/S, and are adequate disclosures provided? |
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Term
| audit procedures for classification and understandability of noncurrent debt |
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Definition
e B/S, is interest expense properly reported on the I/S, and are adequate disclosures provided?
Inspect the F/S. Determine that noncurrent and current debt are properly classified.
Inspect disclosures. |
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Term
| balances included in equity audit plan |
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Definition
Common and preferred stock
Additional paid-in capital (APIC)
Retained earnings
Treasury stock
Accumulated other comprehensive income (OCI) |
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Term
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Definition
| Are all transactions affecting equity for the period reflected in the balance? |
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Term
| auditing procedures for completeness of equity |
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Definition
Perform analytical procedures. Prior-period amounts held should be compared with current amounts.
Reconcile the subsidiary ledger with the control accounts. |
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Term
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Definition
Have the balances for specific accounts been recorded appropriately?
Auditing procedure: Make inquiries of management. |
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Term
| valuation/allocation of equity |
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Definition
| Are balances valued in accordance w/GAAP? |
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Term
| auditing procedures for valuation/allocation of equity |
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Definition
Trace entries to equity accounts.
Test sales of treasury stock. |
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Term
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Definition
| Do the shares reported as outstanding or treasury stock exist at the B/S date? |
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Term
| auditing procedures for existence of equity |
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Definition
Confirm shares issued and outstanding with the registrar and transfer agent.
Inspect stock certificates held in treasury.
Inspect stock certificate book. |
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Term
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Definition
| Have transactions been recorded in the proper period? |
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Term
| rights and obligations of equity |
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Definition
| Do equity balances reflect owners' interests? |
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Term
| auditing procedures for rights and obligations of equity |
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Definition
| Inspect the articles of incorporation and the bylaws of the corporation. |
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Term
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Definition
Did the transactions relating to equity occur?
Vouch entries to supporting documents. (journals to assets) |
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Term
| classification and understandability of equity |
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Definition
| Are balances appropriately presented and are adequate disclosures provided? |
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Term
| auditing procedures for classification and understandability of equity |
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Definition
Read minutes of BOD meetings.
Inspect disclosures about treasury stock.
Search for restrictions. |
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Term
| balances included in payroll audit plan |
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Definition
Payroll expense
Inventories (for manufacturing firms)
Accrued payroll and vacation
Payroll tax liability
Pension costs and other post-employment benefit (OPEB) costs |
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Term
| Payroll processing includes... |
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Definition
| controls that have allowed the auditor to assess the RMM at a low level and thereby reduce the audit effort devoted to substantive testing. Most entities recognize that the benefits of controls exceed the costs related to the payroll processing system. |
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Term
| key control in payroll dept. |
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Definition
| separation of duties including a separate HR department. This control separates authorization from record keeping by the payroll department. |
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Term
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Definition
| Are all transactions affecting payroll reflected in the balances for the period? |
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Term
| audit procedures for completeness for payroll |
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Definition
Are all transactions affecting payroll reflected in the balances for the period?
Reconcile payroll tax expense with payroll tax returns. |
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Term
| analytical procedures (payroll completeness) |
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Definition
| The auditor should compare current expense with expectations from prior periods and management-prepared budgets from the beginning of the period with actual results. |
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Term
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Definition
Have the balances for specific accounts been recorded appropriately?
Audit procedure: Make inquiries of management. |
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Term
| valuation/allocation of payroll |
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Definition
| Are balances valued in accordance w/GAAP? |
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Term
| audit procedures for valuation/allocation of payroll |
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Definition
Trace costs to inventories (for manufacturing firms). The auditor should determine that they contain direct labor costs.
Recalculate pension and OPEB costs. |
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Term
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Definition
| Do the accounts and balances exists as of the B/S date? |
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Term
| audit procedures for existence for payroll |
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Definition
| Observe the distribution of paychecks. A surprise observation of the distribution will provide assurance that only bona fide employees are being paid. |
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Term
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Definition
Have transactions been recorded in the proper period?
Procedure: Test payroll cutoff. |
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Term
| rights and obligations for payroll |
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Definition
| Are the assets (capitalized n inventory), expenses, and payables those of the entity? |
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Term
| audit procedures for rights and obligations for payroll |
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Definition
| Inspect canceled checks. These checks indicate payment to employees, government, and others relating to payroll. |
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Term
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Definition
| Did the transactions relating to payroll occur? |
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Term
| audit procedures for occurrence of payroll |
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Definition
| Vouch a sample of employee transactions. |
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Term
| classification and understandability for payroll |
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Definition
Are payroll costs properly reflected as an expense in the income statement? Are liabilities properly displayed as current or noncurrent on the B/S, and are the disclosures presented adequately?
Procedure: Read the F/S and disclosures. |
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